When Netflix started out, one of their biggest challenges was explaining to people how it works. They spent alot of marketing dollars on that, since it's kinda more complicated than going to a videostore to rent something. They relied on word of mouth, because a) it's free, and b) customers are better at explaining how it works to their friends and family.
Well, Rags thinks it will be their downfall. Now that Netflix has educated the public, Blockbuster Online doesn't have to spend any money explaining how it works to their customers. They can emphasize the in-store coupons, which is something Netflix can't compete with. All they have to say is "it's like Netflix, only from Blockbuster" and "you get four free rentals per month for $18." So Netflix spends all this money on marketing their product, and Blockbuster Online reaps the rewards.
Via the un TechBlog